Quantity Rationing of Credit and the Phillips Curve

Abstract

Quantity rationing of credit, when some ?firms are denied loans, has macroeconomics effects not fully captured by measures of borrowing costs. This paper develops a monetary DSGE model with quantity rationing and derives a Phillips Curve relation where in?flation dynamics depend on cyclical unemployment, a risk premium and the fraction of fi?rms receiving ?financing. Unemployment arising from disruptions in credit ?flows is defi?ned to be cyclical. GMM estimates using data from a survey of bank managers con?firms the importance of these variables for in?flation dynamics.Quantity Rationing, Phillips Curve, Cyclical Unemployment, GMM